by Alyssa Oursler | November 6, 2013 11:56 am
It’s no secret that any properly diversified portfolio should hold its fair share of energy stocks, but choosing the right slice of the energy sector — from oil stocks to solar stocks to everything in between — certainly isn’t easy.
Solar stocks, for example, have been quite the roller coaster for investors. Solar stocks soared to new highs in 2008 and 2009, but most had sunk to new lows by 2011.
Now, investors sentiment has again reversed, with solar stocks sizzling to say the least. Outsized gains have made the solar sector home to some of the best energy stocks of the year.
Many solar stocks still remain far off their previous peaks, but the mega-shift toward renewable energy could propel these picks to new highs. Continued growth in demand and consolidation in the Chinese solar sector, for example, are just a few reasons boarding this ride could be a savvy move in the long run.
Let’s take a look at the three best solar stocks to buy now if you believe in this booming sector.
The first pick in this sector is SolarCity (SCTY), for one simple reason. SCTY is different from most solar stocks.
See, a good chunk of solar stocks, such as First Solar (FSLR) and Trina Solar (TSL), are completely dependent on the pricing of the panels they produce — and that’s why they imploded just a few years back. Producers in China flooded the market with inexpensive solar panels, which drove down prices big-time.
However, SCTY doesn’t produce panels like those solar stocks. Instead, it leases and installs them for residential and commercial customers.
That has been working out pretty well for SolarCity. The company has more or less doubled in size each year, while its market cap has already multiplied sixfold since it went public in December 2012, according to Slate.
One thing to note: SCTY has not yet turned a profit and in fact continues to absorb huge losses. But it already is the largest installer of residential solar energy systems in the U.S. And as the the solar sector keeps growing, that’s a pretty good place for SCTY to be.
Of course, if you believe solar is one of the hottest industries there is and that solar stocks are some of the best energy stocks out there, there’s no reason to worry companies that depend on panel pricing.
Because as demand keeps rising, prices should too.
A great bet on the production side of things is Yingli Green Energy (YGE). Not only is Yingli the world’s largest solar panel manufacturer, but it’s a Chinese company.
Yes, the Chinese market created the glut of supply, as previously mentioned. But Beijing recently announced plans to ramp up its solar capacity and established new rules to encourage mergers and acquisitions. As InvestorPlace Editor Jeff Reeves explained, that could leave Yingli with fewer competitors at home … and a broader footprint as a result.
Plus, Yingli sells solar panels in markets beyond China. It has more than 20 regional subsidiaries in countries from Germany to Israel, and has distributed more than 7,000 MW photovoltaic modules to customers worldwide.
OK, OK — this last pick technically doesn’t qualify as a “solar stock.” But the Guggenheim Solar ETF (TAN) does you one better: It offers you a bundle of some of the very best solar stocks out there.
This specific group of energy stocks corresponds to the MAC Global Solar Energy Index. So while the ETF format means one-step exposure to the rebounding solar sector, the passive approach means a reasonable expense ratio of just 0.7%, or $70 annually for every $10,000 invested.
You also get a good mix of regions with this fund of solar stocks; 30% of TAN’s holdings are in the North American market, while 50% are in emerging Asian markets.
TAN holds 25 companies in all, with domestic solar stocks First Solar (FSLR) and SolarCity (SCTY) making up the top weightings at 6.9% and 6.2% apiece.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.
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